Employer Recovers Minimal Damages Against Departing Employees

September 21, 2012

The BC Supreme Court has awarded only minimaldamages against two former employees for engaging in competition with theirformer employer.

The case began when two employees of Zoic,a digital effects company, decided to start their own visual effects company(“Leviathan”). Following theirdeparture, Leviathan secured a special effects contract from a television productionwhich was, at that point, Zoic’s most substantial client.

Following the employees’ departure, Zoicsued them and pursued a host of claims, the balance of which were rejected bythe court following a three week trial.

Significantly, while the court acceptedthat the two employees had breached their duty of loyalty, fidelity and goodfaith to Zoic by actually competing with Zoic while they were still employed, thecourt awarded only minimal damages. The court found that the employees’breaches did not cause the loss of the special effects contract and Zoic wasawarded damages for loss of opportunity, reduced by 95% to reflect the factthat it was unlikely Zoic would have retained the contract.

This case serves as a stark reminder toemployers to tread carefully when pursuing departing employees for damages.Even where employees breach their duty of loyalty, fidelity and good faith,there must be a compensable loss or the employer risks a nominal judgment fromour courts.

The decision is also a reminder of theimportance properly drafted restrictive covenants to prevent direct solicitationand competition after the end of any employment relationship.

If you would like to discuss any aspectof this case, please contact us.